Over the past few months, elections and political events have demonstrated a clear shift towards protectionism and anti-globalization in Europe and the Americas. In particular, the United Kingdom’s departure from the European Union, or Brexit, and real estate mogul Donald Trump’s election as United States president illustrate this movement.
In a hotly contested referendum, the United Kingdom voted for “leave” on a 52% to 48% majority in a move “leave” advocates have characterized as a reclamation of national sovereignty. In a similar tone that prioritized domestic development, President-elect Donald Trump’s campaign promises included building a wall on the United States-Mexican border, mass deportation of illegal immigrants, tax reduction, and expansion of U.S. infrastructure. For the small nation-states of the Caribbean, these two events only serve to increase economic uncertainty regarding their two largest trade partners, the United States and the European Union.
In post-Brexit months, the pound sterling has fallen to its lowest valuation against the dollar since 1985, while the dollar has soared following Mr. Trump’s election, with current analysts expecting higher inflation due to increased spending funded by debt (1). For Caribbean countries heavily dependent on tourism, the weaker pound will decrease the number of British tourists, while the stronger dollar may increase the number of Americans. On the other hand, the stronger dollar increases the debt owed in U.S. currency by Caribbean countries, making it costlier for them to repay. Regardless of the fluctuations in currency, it is still unclear how far Mr. Trump’s protectionist policies in trade will negatively affect the Caribbean. This issue, however, is further complicated by a global trend among banks known as de-risking.
De-risking is a trend driven by international banks’ desire to cut potential liabilities with high-risk clients or institutions, resulting in the termination or limitation of corresponding banking relationships (CBRs) with local banks from developing areas of the world (2). The Caribbean by far is the region that has been the most severely affected. In fact, data from the World Bank estimates that 89% of jurisdictions in the Caribbean have reported significant to moderate declines in foreign CBRs, with small jurisdictions with large offshore banking activities seeing the highest decrease (3).
While the global financial industry has various reasons for de-risking, its primary motivation is to reduce liabilities from money laundering, offshore banking, and financing of drug-trafficking or criminal organizations (4). With high risk and low revenues, Caribbean banks were the first to suffer, a result that is negatively affecting other key economic drivers. The tourism industry, for instance, plays a major role in regional economies of the Caribbean, generating 15.9 billion USD in the Caribbean in 2014 (5). It is common practice for tourists to pay in foreign currency or by credit card, but it is becoming more difficult for local businesses to exchange currencies.
The decline of CBRs has also increased the difficulty of receiving remittances from family outside of the Caribbean. For countries in the Caribbean heavily dependent on these transfers, this CBR decline is troubling. For Jamaica, remittances composed 16% of total GDP in 2015 (6). It does not help that a majority of these remittances come from the United States and United Kingdom.
The political uncertainty that abounds to the Caribbean’s north is mirrored across the Atlantic. With the pending departure of the fifth largest economy in the world from the EU, trade agreements will have to be renegotiated and restructured. Currently, trade between the Caribbean and the European Union is governed by the CARIFORUM-EU Economic Partnership Agreement (EPA), with CARIFORUM serving as the base institution through which Caribbean countries manage trade with the EU.
As CARIFORUM’s second largest trade partner, the EU has opened up trade with a value of over 8 billion euros in 2011 (7). CARIFORUM’s main exports comprise minerals, including gold; bananas, sugar, and rum; fertilizers; and petroleum gas, oils, and mining products, exports that have suffered with recent declines in oil prices and aggregate demand (8).
The CARIFORUM-EU EPA was designed to grow CARIFORUM countries’ economies, functioning almost as a free-trade agreement to ensure fair competition and open up service sectors in industries such as entertainment (9). The EPA also includes financial support from the EU geared towards development, but with the impending Brexit, this support may decrease.
For the first time in a decade, Caribbean and Latin American economies are growing at a lower rate than those of European nation-states. In fact, 2016 will see Caribbean and Latin American economies’ GDP shrink by 0.9%, while the EU’s GDP will grow by 1.8% (10).
In the past, CARIFORUM would look to the United Kingdom to advocate on their behalf in Brussels. With the UK now facing negotiations that will govern its own trade policy for years to come, CARIFORUM now finds itself more exposed than ever to global financial crises with its dependence on foreign savings and increasingly uncertain relations with foreign banks.
Presently, the Caribbean Community, or CARICOM, upholds the tenets of economic integration and joint development for Caribbean and certain Latin American countries. Further economic integration and the creation of a common currency may be answers to achieving economies of scale and more bargaining power on the international playing field. It will not be easy. In a time where EU advocates fear contagion from Brexit may spread to continental Europe, Jamaica has established a commission to rethink its involvement in CARICOM (11). For its neighboring nation-states dependent on trade, this move is extremely worrying.
(1) Ryan, Charlotte. "Pound Drops to Lowest Since 1985 as Angst Builds Over Brexit." Bloomberg.com. Bloomberg, 4 Oct. 2016. Web.
(2) "Withdrawal from Corresponding Banking: Where, Why, and What to Do About It." The World Bank Group, Nov. 2015. Web.
(4) liams, Arthur. "Why Caribbean Banks Are Bracing for Problems." Americas Quarterly. N.p., 2 Nov. 2016. Web.
(5) "Travel and Tourism : Economic Impact 2014." The Caribbean Development Portal. The World Travel and Tourism Council, 2014. Web.
(6) "Countries and Regions: Caribbean." European Commission Directorate-General for Trade. European Commission, n.d. Web.
(10) Cumberbatch, Shawn. "Still Trade Hope with European Union." Www.nationnews.com. Nation News, 6 Nov. 2016. Web.
(11) Charles, Jacqueline. "Brexit: Caribbean Worries about Ripple Effects." Miami Herald, 11 July 2016. Web.
Image: © Badboo | Dreamstime.com - Flag of the Caribbean Community on brick wall
On Friday, November 4, the historic Paris Agreement drafted at the Paris Climate Change Conference came into effect. With Secretary-General Ban Ki-Moon’s receipt of instruments of ratification, acceptance, and accession from countries representing 55 percent of global emissions, the prerequisite for the agreement’s entry into force is fully met (1). Given the scope and ambitious nature of the Paris Agreement, its full entry into force is surprisingly quick. The inclusion and full support of China and the United States, which emit 28% and 16% of total global carbon dioxide emissions, respectively, is very promising (2).
The Paris Agreement aims to limit the global average temperature increase to below 2°C above pre-industrial levels (3). With 196 nation-states signing, the Paris Agreement builds off previous failures to establish international cooperation to fight global warming. Unlike previously suggested global pacts to fight climate change, the Paris Agreement allows individual countries to produce their “intended nationally determined contributions,” or INDCs, which cover five or ten year periods starting in 2020 (4). While this approach no doubt paved the way for the eventual acceptance of the pact, it also suggests that progress will be slow in cutting emissions.
Along with its individual INDCs, signatories to the agreement also agreed to present individual mitigation contributions and to come together every five years beginning in 2023 in a “global stocktake” to assess collective progress (5). Along with the individual goals set by each nation-state, signatories will be subject to an increasingly transparent accountability system that includes “technical expert reviews, multilateral peer review process, and a standing committee on implementation and compliance” (6).
Current projections place Earth on a path to a 2.7°C increase by the end of the century, a number far above the desired 2°C limit (7). Certain preventative measures, such as the preservation of existing rain forests and transitioning to clean energy, will no doubt play an important role in not exceeding this limit. In addition, developed countries pledged in Copenhagen to devote 100 billion USD from public and private funds to developing nations in an attempt to facilitate sustainable development (8). However, it is important to note that research from the International Energy Agency suggests that more than 16 trillion USD will be needed by 2030 if current INDCs are to be met (9).
With supporters such as Presidents Barack Obama of the United States and François Hollande of France, many world leaders are well pleased with the metrics set by the agreement. Prominent scientists, however, have been quick to condemn its effectiveness. James Hansen, the former NASA scientist known as the catalyst for the fight against climate change, laments the lack of concrete action, commenting, “There is no action, just promises. As long as fossil fuels appear to be the cheapest fuels out there, they will continue to be burned” (10). Hansen’s comments reflect the even larger truth of the diplomatic difficulties of mobilizing market forces to cut carbon emissions often necessary for long-term development and energy supply.
Another challenge to the Paris Agreement may be forming behind closed doors in ongoing negotiations between the United States, the European Union, and 22 other countries. Leaks produced by Greenpeace Netherlands and WikiLeaks have recently given an insider perspective on the potential outcome of the secretive Trade in Services Agreement (TiSA), a trade agreement focused exclusively on opening trade and privatizing various services. The word services itself is vague in nature and, according to Green Peace, may refer to certain goods, along with sectors including banking and energy services (11). Notable economies absent from the deal include China and Russia.
In a world where trade deals such as the TPP and TTIP have become increasingly politicized in resistance to globalization, TiSA has the ambitious aim of deregulating various markets to boost international trade in services. Voters in both the United States and Great Britain have in recent times protested globalization, with the British voting to leave the EU and strong support emerging for Republican presidential nominee Donald J. Trump, who has based his campaign on a strongly nationalistic, protectionist background. Both Mr. Trump and his opponent, Democratic nominee Hillary Clinton, are against the Trans-Pacific Partnership.
Supporters of the TiSA point out that services are the fastest growing sector in the world economy and compose two thirds of global GDP (12). Advocates against the deal point to new leaks to voice concern for both protection of national sovereignty and of the environment. The leaks suggest the existence of a “ratchet” clause, which would not allow for the reversal of privatization in services such as water or energy, and of a “standstill” clause, which would prevent the placement of new regulations to increase trade barriers from the moment of TiSA’s passage (13).
Threats stemming from the inclusion of these two clauses may be minimal for developed countries’ pre-existent public services. As such, public services such as transportation or water will not be threatened. For developing countries, on the other hand, the risk of foreign companies privatizing services such as health care or exploiting labor and natural resources is much higher. Critics, however, do have a valid concern in stating that the ratchet and standstill clauses limit power of governments to reverse liberalization of services, especially in regions where high-carbon emission natural resources are important to local economies.
Unlike the Paris Agreement, where no economic or diplomatic sanctions arise from failure to live up to INDCs, the proposed enforcement method for TiSA would follow the WTO state-to-state dispute process, allowing corporations to sue countries for imposing certain restrictions on services. In the past, this method has largely favored corporations and liberalization of trade, with 43 of 44 WTO cases siding with corporations suing states for imposing restrictions deemed unnecessary (14).
TiSA’s energy annex clearly states that its proposed trade rules would apply to all power generation services, including renewable and non-renewable sources (15). With its overarching goal of curbing government’s powers to regulate services and energy companies, TiSA in its nature functions against the goals set forth in the Paris Agreement. By its nature, the Paris Agreement calls for more regulation on fossil fuel extraction, not deregulation. Governments, for example, may be penalized for limiting exploration of fossil fuels by corporations. While renewable sources of energy are growing increasingly scalable and cheap, many corporations and providers of energy are forced to rely on fossil fuels that emit large sources of carbon dioxide for the time being.
It is important to note, however, that these leaks display ongoing negotiations that may or may not influence the future outcome of the final TiSA deal. MEP Viviane Reding has commented that the European Union will “’never consent’ to a trade pact that diminishes the EU’s right to regulate on climate, health, and social laws” (16). While Ms. Reding’s comments largely align with the EU’s actions as of late, the passage of TiSA would signal a defeat in the battle against climate change and may serve to enrage opponents of free trade.
(1) "Paris Climate Agreement to Enter into Force on 4 November." United Nations, 5 Oct. 2016. Web. 02 Nov. 2016.
(2) "Global Greenhouse Gas Emissions Data." EPA. Environmental Protection Agency, n.d. Web. 27 Oct. 2016.
(3) "Paris Agreement." European Commission. N.p., n.d. Web. 28 Oct. 2016.
(4) "Questions and Answers on the Paris Agreement." The European Commission. N.p., n.d. Web. 28 Oct. 2016.
(7) Schmidt, Jake. "Paris Climate Agreement Explained: What's in It and Where Is It Taking Us?" NRDC. Natural Resources Defense Council, 12 Dec. 2015. Web. 02 Nov. 2016.
(9) Bawden, Tom. "COP21: Hitting the Climate Change Targets Agreed in Paris 'will Cost $16.5trn'" The Independent. Independent Digital News and Media, 13 Dec. 2015. Web. 02 Nov. 2016.
(10) Fallon, Dan. "What You Should Know About The Historic Paris Global Warming Agreement." Digg. N.p., 12 Dec. 2015. Web. 02 Nov. 2016.
(11) Boren, Zachary Davies. "Leaked: How the 'new TTIP' Could Undermine Global Action on Climate Change." Energydesk. Greenpeace, 20 Sept. 2016. Web. 02 Nov. 2016.
(12) Johnston, Ian. "The New TTIP? Meet TISA, the 'secret Privatisation Pact That Poses a Threat to Democracy'" The Independent. Independent Digital News and Media, 30 Aug. 2016. Web. 02 Nov. 2016.
(14) Boren. Ibid.
(15) Neslen, Arthur. "Global Trade Deal Threatens Paris Climate Goals, Leaked Documents Show." The Guardian. Guardian News and Media, 20 Sept. 2016. Web. 02 Nov. 2016.
Image: © Bragearonsen | Dreamstime.com - Campaigning Against The Trade In Services Agreement (TISA) Photo
On October 30th, Canadian Prime Minister Justin Trudeau and corresponding EU officials signed an ambitious trade deal to remove 99% of existing tariffs between Canada and the European Union (1). The finalization of the Comprehensive Economic and Trade Agreement, or CETA, arrives while a wave of anti-globalization movements sweep the globe, resulting in the unexpected results of the British referendum to leave the EU and the popularity of right-wing candidates championing protectionist policies in the United States, France, and many other states.
According to the European Commission, CETA is expected to increase overall EU output by 12 billion euros a year (2). While the trade agreement will have no effect on public goods in Canada nor EU member states, it is expected to ease the costs of trading goods and services for both EU and Canadian corporations. In fact, according to European Commission President Jean-Claude Juncker, European exporters of industrial and agricultural goods are expected to save up to 500 million euros a year as a result of CETA (3).
Despite the perceived economic benefits of the agreement, some EU citizens have expressed concern towards specific features that may compromise their governments’ ability to favor domestic corporations over Canadian ones. CETA includes a mandate for an Investment Court System, which would function as an independent judicial system through which investors may sue states for alleged discriminatory practices. In fact, the establishment of such a court was not accepted by multiple EU nations until changes were made to the clause to bolster governments’ right to regulate (4).
Another point of contention has been the elimination of 94% of EU agricultural tariffs, a move that prompted the Belgian region of Wallonia to temporarily halt the signing of CETA, until continued negotiations finally led to a breakthrough (5). Historically, French-speaking Wallonia has been a primarily agricultural and coal-based economy, as opposed to the more service-based northern region of Flanders. Along with Brussels, Wallonia and Flanders constitute the three regions of Belgium. From a juridical perspective, the three regional governments, along with the federal and communal governments, maintain specific privileges but are equal in certain economic matters, a division of powers that allowed Wallonia to postpone the completion of CETA (6).
For cities and regions similar to Wallonia who benefit primarily from non-service based industries, globalization and the resulting increase in trade have been viewed as major threats to economic and financial security. European Commission President Juncker, nevertheless, is optimistic about the potential effects of CETA, and proclaimed alongside Trudeau to be “setting standards which will determine globalization in the coming years” (7). This assertion, however, in the context of ongoing negotiations for TTIP and the impending Brexit, is difficult to defend.
Recent trends suggest that the world is moving towards a primarily service-based economy. According to the World Bank, services currently comprise 75% of the European Union’s economy and 80% of that of the United States (8). These statistics are not to say that industries such as manufacturing are not essential to western economies; rather, non-service based industries are becoming less reliant on human capital. In the United States, for example, factories are producing double the output they did in 1984, but with one-third fewer workers (9). The loss of American manufacturing jobs to improved technology and countries with lower working costs has incidentally stirred anti-globalization sentiments in the United States, particularly among working-class, white Americans.
These anti-trade sentiments present in the United States make it difficult to draw a parallel between CETA and the proposed Transatlantic Trade and Investment Partnership (TTIP) between the U.S. and the EU. While President Obama’s administration is a strong supporter of the agreement, president-elect Donald J. Trump has vehemently opposed the deal. On the other side of the Atlantic, Europeans are also expressing opposition to TTIP, with certain German and French politicians going as far as to say that talks are dead (10). While EU Trade Commissioner Cecilia Malmstrom has blatantly rejected these claims, she has asserted that the talks will most likely require the cooperation of the next U.S. president. With Mr. Trump’s position on the TTIP, the probability of an agreement being reached is not too high.
Similarly, while Britain has yet to trigger Article 50 to exit the European Union, high ranking EU officials face the difficulty of striking a delicate balance between maintaining strong economic ties with Britain and minimizing the risk of contagion. Unlike with CETA, Brexit negotiations involve the creation of trade barriers among parties with conflicting interests, not to mention the unprecedented departure of a nation-state from the European Union. While CETA indubitably will have a positive net economic benefit for the EU and Canada, the long-term effects of Brexit on both the EU and Britain are yet to be determined.
Moving forward, CETA is expected to come into partial effect next year, under the condition that it passes through the European Parliament (11). Following its passage through the European Parliament, it will need to be ratified by the individual governments of EU member states before it comes into full effect.
(1) "Ceta: EU and Canada Sign Long-delayed Free Trade Deal." BBC News. N.p., 30 Oct. 2016. Web. 02 Nov. 2016.
(2) "Questions and Answers (CETA)." The European Commission. N.p., n.d. Web. 03 Nov. 2016.
(3) Dendrinou, Viktoria. "EU, Canada Sign Landmark Free-Trade Agreement." The Wall Street Journal. Wsj.com, 30 Oct. 2016. Web. 02 Nov. 2016.
(4) Provost, Charlotte. "CETA Explained: How the Canadian-EU Trade Deal Is Stirring Up Controversy." NATO Association of Canada. N.p., 28 Oct. 2016. Web. 03 Nov. 2016.
(7) Bartunek, Robert-Jan, and Philip Blenkinsop. "EU, Canada Sign Free Trade Deal but Battle Not over." Reuters. Thomson Reuters, 30 Oct. 2016. Web. 03 Nov. 2016.
(8) "TISA." WikiLeaks. N.p., 15 Sept. 2016. Web. 03 Nov. 2016.
(9) Nutting, Rex. "Think Nothing Is Made in America? Output Has Doubled in Three Decades." Market Watch. N.p., 28 Mar. 2016. Web. 4 Nov. 2016.
Image: © Piccaya | Dreamstime.com - TTIP GAME OVER Activist In Action During A Public Demonstration Photo
Florida-based firm APR Energy is suing the Australian government for the seizure of four gas turbines under obscure laws of the Personal Property Securities Act (PPSA). APR Energy is reportedly seeking 200 million USD in damages. The energy company, which provides power to customers in the Americas, Asia-Pacific, Middle East, and Africa, commissioned a mobile natural gas turbine power plant in Port Hedland, Pilbara, Western Australia, in 2015 (1). The power plant, according to the company’s website, was its first venture in Australia and served as an energy source at the center of Australia’s extractive industry for state-owned utility Horizon Power. A permanent power plant is expected to be completed in 2017, at which point the APR plant will no longer be needed.
Originally, APR leased the turbines worth a reported 64 million USD to the contracting firm Forge Group. Unbeknownst to APR, however, Forge Group used the turbines to secure debt through ANZ, the Australia and New Zealand Banking Group (2). When Forge Group went bankrupt, ANZ received ownership of the turbines over APR, citing the Personal Property Securities Act, which allows leased property to act as collateral for a loan (2). APR Energy, for its part, is suing the Australian federal government under the claim that the expropriation of its turbines is a blatant violation of the Australia-U.S. Free Trade Agreement and international law (3).
The Australia-U.S. Free Trade Agreement (AUSFTA) came into effect in 2005 and includes market access for goods, labor, cross-border services, and financial services, among other things (4). AUSFTA was not passed without a good deal of criticism in Australia. In fact, according to the National Institute of Economic and Industry Research, the AUSFTA “could cost the Australian economy up to $50 billion and 200,000 jobs (4). Most notably for the case of APR Energy, AUSFTA does not include an investor-state dispute settlement provision (3). Essentially, the lack of such a clause makes it difficult for the Australian government to be directly sued by a foreign enterprise. For APR, the lack of such a clause provides a difficult basis for bringing the matter to court. Regardless, APR is citing Articles 11.6 and 11.7 of AUSFTA, a pair of clauses that address compensation for expropriation, and given that power is being provided to a state-owned utility, APR claims this seizure is the equivalent of nationalization of its assets (3).
Expropriations, by definition, are acts of government that turn private property towards a certain use designed to benefit the overall public (5). The public entity, however, is required to provide compensation in an amount equaling the value of the asset. In the United States, one of the most prominent and controversial examples of an expropriation is the use of eminent domain to seize land for public use. Even with the requirement of just compensation for the use of expropriations, it is not uncommon for private citizens to exhaust all appeal processes available. In the case of APR, an ongoing court appeal will determine if the energy company is entitled to 200 million USD in damages to compensate for the seizure of its Australian power plant.
Should the appeals process yield the same result as the initial court decision, which stood in favor of ANZ and the Australian government, APR will be forced to accept the loss of its power plant. While Australian law is clear in allowing the use of leased property as loan collateral, this case may send a dangerous message to foreign investors seeking to pursue returns in Australia. To encourage foreign investment, domestic laws must be both transparent and understandable to potential foreign investors.
(1) "APR Energy Australian Power Plant Operational as Summer Heats up." APR Energy, 12 Feb. 2015. Web. 7 Oct. 2016.
(2) Garvey, Paul. "APR Urges Inquiry to Grill ANZ Chief on 'seizure'" The Australian. N.p., 5 Oct. 2016. Web. 8 Oct. 2016.
(3) Newsham, Jack. "Australia Faces $200M Claim Over US Co.'s Generator Seizure." Law360. N.p., 5 Oct. 2016. Web. 7 Oct. 2016.
(4) "US-Australia." Bilaterals. N.p., n.d. Web. 10 Oct. 2016.
(5) Root. "Expropriation." Investopedia. N.p., 19 Nov. 2003. Web. 10 Oct. 2016.
Image: © Gordon Tipene | Dreamstime.com - Oil refinery in Sydney, Australia.
Following the recently failed coup attempt in Ankara, Turkish President Recep Tayyip Erdogan is expected to visit Turkey’s neighbor, Iran, within the next month. The planned visit, which has yet to be formally scheduled, arrives at a time when Turkey treads a delicate path between Eastern and Western alliances. The NATO member is currently in the process of negotiating its complete entry into the EU, a process complicated by the ongoing migration crisis and policy of visa-free travel for member states.
Recent times have seen Turkey drift away from its Western allies in the search of new partnerships with neighboring countries, specifically Russia and Iran. Wars ravaging nearby countries have strained Turkey-NATO relations. In fact, before the United States-led invasion of Iraq in 2003, Turkey “was firmly an ally of the West and a key member of NATO” (1). Under Erdogan, Turkey followed a “policy of zero tension with its neighbors,” until the government threw its support behind Syrian rebels, as well as Al-Qaeda supporter al-Nusra Front, a group the United States labels a terrorist organization (1).
Along with the recently attempted coup, ongoing civil strife in nearby Syria and Iraq has also contributed to President Erdogan’s desire to seek regional stability with the help of non-NATO influence. According to Stanislav Tarasov, the Director of the Middle East-Caucus Research Center, Erdogan’s dominant foreign policy strategy has been to utilize Turkey’s position as a member of NATO to expand regional influence (2). For the most part, this strategy has been unsuccessful in expanding Turkey’s regional authority, with Ankara’s resulting involvement in the Syrian and Iraqi wars yielding no improvements in regional stability.
In fact, the subsequent conflicts have caused two million refugees to stream into Turkey, and a simultaneous Kurdish rebellion in southeast Turkey has further complicated matters for the ruling AKP Justice and Development Party (2). President Erdogan’s government is further angered by United States support and training of Kurdish rebels in Syria who seek an autonomous region in their fight against the government of Syrian President Bashar al-Assad. American-Turkish tensions continue to simmer following Turkish accusations that the United States played a role in the recent coup attempt in July.
While the United States has condemned the coup, Turkish Labor Minister Suleyman Soylu has “publicly charged the United States with responsibility for the coup,” a declaration that may relate to the American refusal to extradite the founder of the Gulen movement to Turkey (1). Followers of Fethullah Gulen, a Turkish cleric who lives in the United States, are being accused of organizing the military coup and are being cleared from all positions of power under Erdogan (3). President Erdogan has made it clear to the Turkish people that disloyalty to his government will be punished, effectively removing 2,745 judges from duty in what has become a purge of non-loyalists spanning the country’s judicial system, military, universities and government (4). However, United States and European critics have claimed that Erdogan is utilizing the coup attempt to consolidate his power under authoritarian rule.
Loyal supporters of President Erdogan and the AKP party successfully quashed the attempted coup by rebel forces within the Turkish army. Recent reports suggest that Erdogan received information regarding the coup via Russian intelligence several hours before its commencement (5). Following this aid from Russia, Erdogan visited Moscow on 8 August to assert that, “the Moscow-Ankara friendship axis will be restored,” signaling a further shift to creating amicable ties with Russia (5).
In its search for regional allies, the coup has yielded Turkey clear suggestions as to whom it can count on for aid. Along with Russia, Iran was quick to condemn the coup and offer its assistance. In fact, throughout the duration of the coup, high-ranking Iranian officials, including Foreign Minister Javad Zarif and Secretary of Iran’s Supreme National Security Council Ali Shamkhani, were in direct contact with their Turkish counterparts (6). Iran’s willingness to actively support Erdogan’s government in its time of crisis further signals the growing relationship between the two countries. Other Turkish allies, on the other hand, were less quick to support the current government, drawing even further contrast to the staunch loyalty of Iran to uphold the AKP’s rule in Tehran. Saudi Arabia, for instance, took a full two days to condemn the coup (3). The emerging tripartite alliance of Russia, Iran and Turkey holds significant promise to increasing regional stability in the Middle East, but staunch differences remain that must first be addressed regarding the Syrian civil war.
Prompted by the advent of the Arab Spring, the Syrian civil war has resulted in the death of 250,000 Syrians and the displacement of 11 million Syrians, a population representing half the country that has created an international refugee crisis (7). The Arab Spring, which led to the fall of Tunisian President Zine El Abidine Ben Ali and Egyptian President Hosni Mubarak, gave hope to Syrian citizens who hoped for economic progress, restoration of certain freedoms, and ultimately, the removal of President al-Assad (7). Resultantly, various rebel groups arose, including the rebel military faction of the Free Syrian Army. Over time, Syria descended into civil war, a conflict that is now being fought on multiple fronts with many stakeholders.
Furthermore, ISIL has risen to global prominence by terrorizing much of northern and eastern Syria since early 2013 (7). Currently, an international coalition led by the United States is working to regain territory in Syria currently controlled by the group. Meanwhile, Syrian President al-Assad refuses to vacate his position of power, despite international outcry against his government’s human rights abuses, including the use of chemical weapons against his own people. President al-Assad, however, is backed by Shia Iran and Iraq, as well as Russia. On the other hand, Syrian rebels, including the Free Syrian Army, are backed by Sunni states such as Turkey, Qatar, and Saudi Arabia, as well as the United States. There are also various Kurdish forces that wish to establish an autonomous region in northern Syria, all of which have received US support in the past.
Turkey views these Kurdish forces as terrorist groups, a viewpoint actually shared with Iran. While the two countries may disagree on certain issues related to Syria, they may find a common ground in the battle against the Kurds, as well as in the pursuit of terminating ISIL. Also, Ankara has shown signs of shifting its stance towards President al-Assad, with Prime Minister Binali Yildirim stating that “Assad can remain in power at least during the transition period” (1). This shift in Turkish policy speaks volumes as to the country’s intentions to further expand relations with Russia and Iran and potentially challenge future relations with the United States and its allies. For now, Turkey and the United States are united in their common goal of eradicating ISIL. In examining future Turkish relations within these two states, however, most issues will be inferior to the more pressing Syrian question.
In his upcoming visit to Tehran, President Erdogan will no doubt discuss a joint plan moving forward to fight ISIL and Kurdish forces in Syria, among his other intentions to improve relations with Iran. It remains to be seen if he will completely reverse his vehement stance against the removal of al-Assad in the pursuit of better Russian and Iranian relations. It is important to note that Turkey and Iran do not wish to fall completely under the influence of Moscow. An important aspect to note is that the three countries are largely united by a desire to mitigate Western influence in their region and to expand their own interests in the resource-rich Middle East. The profound consequences of a delicate tripartite alliance between Russia, Iran, and Turkey would lay the foundation for a common ground to be found regarding the ongoing conflict in Syria, and for a more effective regional coalition that could spell hope for peace in Damascus.
(1) Heirannia, Javad. "Old Alliances Falling Apart and New Ones Being Formed: Professor." Tehran Times. N.p., 06 Sept. 2016. Web. 07 Sept. 2016.
(2) Sputnik. "What to Make of Erdogan's Proposal for a 'Turkish-Iranian-Russian Alliance'" Sputnik News. N.p., 21 July 2016. Web. 07 Sept. 2016.
(3) Tastekin, Fehim. "Will Turkey's Failed Coup Push Erdogan Towards Iran, Russia?" US News. N.p., 21 July 2016. Web. 7 Sept. 2016.
(4) Cockburn, Harry. "Turkey Coup: 2,700 Judges Removed from Duty following Failed Overthrow Attempt." The Independent. Independent Digital News and Media, 16 July 2016. Web. 08 Sept. 2016.
(5) Timmerman, Kenneth R. "The Turkey-Russia-Iran Axis." Frontpage Mag. N.p., 22 Aug. 2016. Web. 08 Sept. 2016.
(6) Hashem, Ali. "Why Iran Stood with Erdogan." Al-Monitor. N.p., 25 July 2016. Web. 08 Sept. 2016.
(7) "Syria's Civil War Explained." AJE News. N.p., 24 May 2016. Web. 08 Sept. 2016.
Image: © Palinchak | Dreamstime.com - Turkish President Recep Tayyip Erdogan
With the advent of climate change as a threat to global security and peace, world leaders are being forced to pursue sources of clean energy. While solar, wind, hydroelectric, and nuclear methods of obtaining renewable energy have shown promise, they have struggled to achieve efficient scale, affordability, consistency, and safety levels to fully match current demand. The EU has committed to reduce its CO2 emissions to 60% of its 1990 levels by 2030, a vow that will require balancing the reduction of greenhouse gas emissions and satisfying energy needs (1). The source that has matched these criteria for decades is liquefied natural gas. Compared to coal-fired power plants, natural gas powered plants produce 50% less CO2 emissions (1). Moreover, it is a plentiful resource on the Eurasian continent.
The need for resources has created power dynamics between peoples of different empires and states throughout history, and modern times are no exception. An abundance of Russian natural gas reserves has provided an invaluable opportunity for Moscow in the European market. For the past-half century, Russia has utilized its deep natural gas reserves to establish veins of influence in Central Europe in the form of natural gas pipes.
In 2013, the European Union, Turkey, Norway, Switzerland, and the non-EU Balkan states consumed 18.7 trillion cubic feet (Tcf) of natural gas (2). Of this 18.7 trillion, 30% was supplied by Russia (2). To add to European dependence on Moscow, Western Europe’s natural gas from the North Sea and the United Kingdom “are in decline and could fall by at least 50 bcm [billion cubic meters]- over the next 20 years” (3). Russia recognizes this potential future demand and has been actively pursuing projects to extend its gas distribution networks into Europe.
Russia currently has eight gas pipelines feeding into Central and Eastern Europe, with an additional five in the proposal and development phases (4). In order to reach Central Europe, however, these gas pipelines must transit certain countries’ territories and maritime borders. Of these transit countries, the most significant is Ukraine.
A country with close geographical and historic ties to Russia, Ukraine hosted the flow of 3 trillion cubic feet of natural gas in 2013, or roughly 16% of European natural gas consumption (5). The two largest pipelines carrying Russian natural gas through Ukraine are the Bratstvo/Brotherhood pipeline and the Soyuz/Union pipeline (2). The Bratstvo pipeline is Russia’s largest pipeline feeding into Europe and “splints in two to supply northern and southern European countries,” while the “Soyuz pipeline links Russian pipelines to natural gas networks in Central Asia” (2). These two pipelines allow Russia to exert incredible influence over not only Ukraine, but also continental Europe.
In the past, tensions between Ukraine and Russia have complicated the delivery of natural gas. For instance, in the winters of 2006 and 2009, natural gas supplies to European countries were cut off due to cost disputes between Russia and Ukraine (6). These disputes increased diplomatic tensions between Europe and Russia, and further advanced the Russian desire to decrease dependence on Ukraine for transit of its natural gas funnels into Europe. At a certain point, almost “80 percent of Russian natural gas exports to Europe transited the Ukraine” (5). Today, following the foundation of the Nord Stream pipeline, that number has fallen to between 50 and 60 percent (5).
According to its website, Nord Stream AG is a gas transmission company incorporated in the Swiss city of Zug for the sole purpose of advancing the Nord Stream pipeline project, with the majority of its shares owned by the Russian, state-owned company Gazprom, and other shares owned by European partners (1). Zug, a city infamous for its holding taxation laws, allows corporations registered in Zug “to pay taxes only on income generated in Switzerland” (7). In addition, foreign companies are taxed 8.8%, but laws allowing businesses to deduct these taxes from Swiss federal taxes of 8.5% leave a stunning taxation rate of a mere 0.3% (7). For a natural gas and energy company such as Nord Stream, the laws of Zug offer an unparalleled opportunity to profit from overseas operations.
The Nord Stream pipeline is projected to be able to supply 55 billion cubic meters (bcm) of natural gas for the next 50 years; the line passes through the Baltic Sea from Vyborg, Russia to Greifswald, Germany (8). Despite its path through Baltic waters, the pipeline transverses the economic zones and territorial waters of Russia, Finland, Sweden, Denmark, and Germany, requiring the approval of all five countries before the commencement of the project (8). For Russian-owned Gazprom, the complications that arise from partnering with these four countries pale in comparison to those that arise from transiting gas through Ukraine.
While Russia claims that its Nord Stream pipeline’s purpose is purely economic, certain data suggest otherwise. Due to the European Union’s “Third Energy Package,” Nord Stream currently operates at half of design capacity (6). The Third Energy Package is designed to protect European interests from growing heavily dependent on a single source, prohibiting “monopolistic ownership and use of energy pipelines on EU territory” (6). This policy has ensured that, from a purely economic perspective, the Russian Nord Stream investment has not paid off to its full potential.
To better understand Russia’s intentions behind the Nord Stream project, one need only take notice of Nord Stream II, a planned pipeline that would run parallel to the existent Nord Stream I line and offer a capacity of 55 billion cubic meters of natural gas a year (1). At full operational capacity, Nord Stream II would account for “almost 15 percent of current EU demand when it starts in 2019” (3). Except for one thing: Nord Stream II would also not operate at full capacity. The Third Energy Package prevents this from becoming a reality. In the words of Amos Hochstein, U.S. Special Envoy and Coordinator for International Affairs, “Nobody spends money building pipelines in a low-oil environment when you already have a pipeline that works just fine” (9). So, if it already has an existing pipeline operating merely at half capacity, why does Russia wish to expand its network of natural gas pipelines?
Quite simply, by having the full capacity to satisfy German demand for natural gas with an additional Nord Stream pipeline, Russia would have the ability to maintain supply to Germany and cut off gas supplies to Eastern European rivals, such as the transit country of Ukraine, in the event of political escalations. While such a situation is unlikely to endure for more than a short period of time, Germany would otherwise be placed in an uncomfortable position. Another point of interest: In the recent past, influential members of the German government have been involved in Nord Stream operations. Former German Chancellor Gerhard Schröder, a heavy proponent of the initial Nord Stream pipeline, was “named the head of the Nord Stream shareholders’ committee literally days after stepping down as chancellor” (6). While current Chancellor Angela Merkel is steadfast on her position to mitigate Russian aggression towards German ally Ukraine, Schröder’s legacy and political allies in the Christian Social Union party and Social Democratic Party are making it difficult for her to justify politically opposition to Nord Stream II, especially with upcoming elections (6). Should Nord Stream II become operational, Germany would reinforce its status as a hub and center for the distribution of liquefied natural gas for Europe.
Despite efforts from various parties, the future status of Nord Stream II is highly uncertain. On August 12, Gazprom’s five Western partners rescinded their agreement to build Nord Stream II, rightfully citing concerns from a Polish regulator that the project would violate the Third Energy Package (10). Without the support of its Western European partners, Gazprom will struggle to execute Nord Stream II. With the increased risk of failure for Nord Stream II, Gazprom will most likely attempt to advance forward its Turkish Stream pipeline through Turkey, continuing its pursuit of reducing the amount of Ukraine-transited natural gas (10). Following Western condemnation of its handling of its recent attempted coup, Ankara is forging a delicate balance between honoring its NATO commitments and building amicable relations with Moscow.
Through its construction of what have frequently been economically unproductive gas pipelines, Russia has gradually attempted to expand its influence in energy supply over both Eastern and Western Europe. Existing and potential routes traversing the Baltic Sea and Turkey will further contribute to this expansion of Russian power, specifically in diminishing the influence of Ukraine as a transit country. These construction projects violate antitrust European laws and create overt European dependency on Russian natural resources. In the years to come, the United States must aid its European allies through the provision of its own natural gas reserves. Europe, for its part, must not forget the importance of its Third Energy Package in upholding diversity of supply and of exploring alternative sources of energy. It would also be well advised to curtail the advancement of Russian pipelines into its territory and to recognize them for what they truly are: channels of Russian influence threatening to divide Europe.
(1) "The Nord Stream and Nord Stream 2 Are a Brand New Pipeline Routes to Transport Russian Gas to Europe." Gazprom Export, n.d. Web. 20 Aug. 2016.
(2) Metelitsa, Alexander. "16% of Natural Gas Consumed in Europe Flows through Ukraine." U.S. Energy Information Administration - EIA - Independent Statistics and Analysis, 14 Mar. 2014. Web. 20 Aug. 2016.
(3) "A Network of Russian Veins of Influence : Gas Pipelines of the European Continent." Eyes on Europe Middle East News. N.p., 06 Oct. 2015. Web. 21 Aug. 2016.
(4) "A Network of Power: Gas Pipelines of the European Continent (Infographics)."South Front. N.p., 21 Aug. 2015. Web. 21 Aug. 2016.
(5) "Ukraine: An Important Transit Country for Natural Gas and Petroleum - IER."Institute for Energy Research. N.p., 24 Mar. 2014. Web. 20 Aug. 2016.
(6) Cutler, Robert M. "Baltic Security And The Nord Stream Two Pipeline - Foreign Policy Research Institute." Foreign Policy Research Institute, 20 Apr. 2016. Web. 22 Aug. 2016.
(7) Walt, Vivienne. "Zug's Secrets: Switzerland's Corporate Hideaway." Time. Time Inc., 11 Jan. 2010. Web. 21 Aug. 2016.
(8) "Nord Stream - The New Gas Supply Route for Europe." Nord Stream AG. N.p., n.d. Web. 20 Aug. 2016.
(9) Delcker, Janosch. "Germany Blocks out Allies’ Wails over Russian Pipeline Love." Politico. N.p., 17 May 2016. Web. 21 Aug. 2016.
(10) Jong, Sijbren De. "Is Nord Stream II Dead?" EU Observer. N.p., 18 Aug. 2016. Web. 28 Aug. 2016.
Image: © Leonid Eremeychuk | Dreamstime.com - Construction of gas pipeline on the ground
Migrants from Syria, Afghanistan, Iraq, and other regions of the world are pouring into Europe. The EU is struggling to accommodate them. A stunning 1.82 million irregular migrants and refugees entered Europe in 2015, an amount six times greater than the 282,962 who entered in 2014 (1). Civil war in Syria has placed pressure on Europe from the East. To stem the incoming flow of migrants, the EU established a deal with Turkey where Ankara agreed to take back detained irregular migrants in Greece in return for cash and visa-free travel for Turkish citizens throughout Europe (2). In the two weeks following the attempted coup against President Erdogan on July 15, however, Europe has been dealt 1,170 additional asylum seekers from Turkey, increasing the total amount of asylum seekers on the northeast Aegean islands to 10,000 (2). The political instability following the coup places further pressure on European courts that hope to return migrants to Turkish territory.
The migration crisis does not stem from the East alone. Europe has always dealt with irregular migration from northern Africa, and with the establishment of free borders within member states of the Schengen area, countries have been forced to pool resources and data to better address these issues. In a 2004 effort to coordinate and manage its unified borders, the European Union established the European Agency for the Management of Operational Cooperation at the External Borders of the Member States of the European Union, an organization better known as Frontex (3). Frontex has seen a gradual increase in their budget of 6.3 million euros in 2005 to 254 million euros in 2016, a clear signal of the EU’s intent to stem the flow of irregular migration (4).
Frontex has classified seven popular routes through which undocumented migrants attempt to enter the European Union: (a) The Central Mediterranean route, from Tunisia and Libya to Italy and Malta; (b) The Western Mediterranean route, from Morocco and Algeria to Spain; (c) the Western African route, from the West African coast to the Spanish Canary Islands; (d) the Eastern borders route; (e) the Western Balkans route, from non-EU countries through the Balkans into the EU; (f) the Albania-Greece circular route; (g) and the Eastern Mediterranean route, from Turkey to Greece by land and sea (5).
According to the United Nations High Commissioner for Refugees, the vast borders of the European Union “make it virtually impossible to prevent people from crossing the Sahara, the Atlantic, and the Mediterranean.” (6). While certain points of entry are more vulnerable than others, migrants coming from destitute surrounding regions are often willing to “travel thousands of kilometers to access a clearer throughway if the route near their home becomes blocked” (7). Past successful efforts to curb irregular immigration have merely redirected the flow of migrants. These anti-entry measures have led to the creation of new and more perilous routes to Europe for refugees and have increased migrants’ dependence on smugglers for aid (7).
Such was the case in the mid-2000s, when successful anti-entry policies diverted flow of migrants from West Africa to the Central Mediterranean route. In 2006, the West African route off the West African coast to the Canary Islands peaked as “the busiest irregular entry point for the whole of Europe with 32,000 migrants” (8). Following multiple surveillance efforts from Spanish authorities, including bilateral repatriation agreements with Senegal and Mauritania, the numbers dropped to 12,500 migrants in 2007 (8). While Spanish attempts to curb migration were successful in the West African route, the effects were felt elsewhere. The ability of smugglers to quickly re-establish routes and connect with new clients trumped the slow bureaucratic response of European authorities to curtail irregular migration. Through the use of mobile phones and the Internet, smugglers and migrants were able to quickly adapt and configure new routes into Europe (1).
Following the implementation of Spanish border control policies, the Central Mediterranean route experienced a large increase in irregular migration patterns. According to Frontex data, 39,800 irregular migrants attempted to cross into Europe in 2008. With slight lulls in previous years due to regional instability, the number of irregular immigrants attempting to enter Europe through the Italian island of Lampedusa has steadily increased, peaking at 170,760 migrants in 2014, an increase of 970% from 2012 numbers (9). Along with the Eastern Mediterranean route, which has seen 162,563 migrants attempt to enter the European Union in the first half of 2016 alone, the Central Mediterranean route has experienced the most immigration traffic in recent years. With increased Italian surveillance efforts and the newly implemented Turkey-EU repatriation deal, irregular migration is expected to decrease in the Central Mediterranean, as well as the nautical border separating Turkey and Greece (1).
If history is to repeat itself, the increased difficulty of migrating through previous popular routes will force migrants desperate to escape their countries of origin to find new routes or to reactivate old ones. While its numbers still pale in comparison to those of other routes, the West African Route had 874 migrants in 2015 attempt to gain entry to the Canary Islands, a stark contrast to the mere 275 who attempted entry in 2014 (8). With violence raging in parts of Sudan and most of Libya, and increased European attention to curb migration efforts from the Central Mediterranean, sub-Saharan and North African immigrants will be forced to the Western African and Western Mediterranean routes to find their path to Europe. Previous measures taken by the Spanish government to close off the Western Mediterranean route through the Straits of Gibraltar will re-shift immigration traffic further west to the Canary Islands, as was the case in 2006 (7).
Currently, only 9% of irregular migrants attempting to enter Europe come from West Africa (7). A vast majority of migrants from West Africa are sub-Saharan Africans who were able to take advantage of the visa-free movement among member states of the Economic Community of West African States, or ECOWAS, in arriving to northwestern African states. These trends of irregular migration from the south point to the need for further cooperation between the European Union and African states. From their perspective, ECOWAS states have pledged to uphold the 2006 EU-Africa Tripoli Declaration on Migration and Development, an agreement focused on curbing irregular migration.
Despite varying immigration policies among its member states, the European Union has supplemented patrols of their borders with a three pronged strategy of non-entry policies to curb irregular immigration, consisting of tightened visa restrictions for citizens from third world countries, repatriation agreements, and risk awareness campaigns in points of embarkation (10). These anti-entry policies fall in line with the opinions of the majority of European citizens, who view even legal immigration and increased diversity in their countries negatively (11). This desire to close off entry paths for most immigrants has placed a burden on European authorities to further secure borders. In an effort to fulfill this expectation of security, the European Union hopes to transform Frontex into the European Border and Coast Guard Agency within the next year, a transition that would expand the responsibilities of Frontex and allow for more efficient search and rescue operations (12).
There is no doubt that the influx of irregular immigrants has placed both an economic and social strain on Europe, and with the increased amount of terror attacks on the European continent, it is only natural that citizens are concerned for their safety and that of their loved ones. The nation-states of Europe, however, would be well reminded that the geopolitical and socioeconomic factors behind the current immigration crisis ensure that the influx of peoples is not likely to relent any time soon. According to the United Nations High Commissioner for Refugees, the lack of “legal channels for immigration…to match the real demand for labor,” the presence of nearby “large informal economies,” and the raging conflicts in Syria, Libya, and other close regions ensure the continuation of irregular migration in the near future (6).
At best, past and current efforts to curtail irregular migration have redirected the flow of migrants to new routes, inefficiently spending funds and forming more perilous routes that expose migrants to various human rights violations, including murder and rape. Many migrants attempt to enter the European Union in an effort to escape areas ravaged by violence, and returning them to their country of origin at times can be a death sentence. Europeans would be justified in remembering their commitment to the rights of all human beings, not merely their own citizens, to life, liberty, and security in their European Convention on Human Rights. Repatriation agreements and sustainable investments in countries of origin, along with more integrated cooperation within the EU, are a step in the right direction, but they must be supplemented with other efforts. A commitment to increased collective research on immigration patterns, along with lawful adjustments that allow immigrants to legally join European societies and fulfill the demand for cheap labor, will be more beneficial in the long run for all parties than short term reallocation of migrant flows.
(1) Freitas, Any. “The Routes Less Travelled: Irregular Migration to the EU.” RUSI. N.p., 05 May 2016. Web. 12 Aug. 2016.
(2) Oliphant, Vickiie. “Greece Sees 76 Percent Rise in Migrants after Turkey’s Dispute with Europe Following Coup.” Daily Express World RSS. N.p., 11 Aug. 2016. Web. 12 Aug. 2016.
(3) “Frontex | Mission and Tasks.” Frontex | Mission and Tasks. N.p., n.d. Web. 11 Aug. 2016.
(4) “Vorwort.” Frontex Budget 2016 (n.d.): n. pag. Frontex. 24 Dec. 2015. Web. 12 Aug. 2016.
(5) Morehouse, Christal, and Michael Blomfield. “Irregular Migration in Europe.” (2010): n. pag. Transatlantic Council on Migration, Dec. 2011. Web. 12 Aug. 2016.
(6) De Haas, Hei. “Irregular Migration from West Africa to the Maghreb and the European Union: An Overview of Recent Trends.” Migrant Smuggling (n.d.): n. pag. International Organization for Migration, 2008. Web. 12 Aug. 2016
(7) “Transnational Organized Crime in West Africa: A Threat Assessment.” (n.d.): 25-31. United Nations Office on Drugs and Crime, Feb. 2013. Web. 12 Aug. 2016.
(8) “Frontex | Western African Route.” Frontex | Western African Route. Frontex, n.d. Web. 11 Aug. 2016.
(9) “Frontex | Central Mediterranean Route.” Frontex | Central Mediterranean Route. Frontex, n.d. Web. 12 Aug. 2016.
(10) Kleist, Nauja. Europe Fighting Irregular Migration – Consequences for West African Mobility (n.d.): n. pag. Danish Institute for International Studies, Oct. 2011. Web. 12 Aug. 2016.
(11) Drake, Bruce, and Jacob Poushter. “In Views of Diversity, Many Europeans Are Less Positive than Americans.” Pew Research Center RSS. Pew Research Center, 12 July 2016. Web. 12 Aug. 2016.
(12) “Frontex Welcomes European Parliament Vote on European Border and Coast Guard.” Frontex | News. Frontex, 6 July 2016. Web. 12 Aug. 2016.
Image: © Radekprocyk | Dreamstime.com - Refugees Leaving Hungary Photo
The Islamic Republic of Iran’s efforts to join the World Trade Organization (WTO) have long been met with resistance. Iran first filed for formal membership in 1996 and has been engaged in the accession process for the past two decades. On average, the process takes a decade for an aspiring nation (1).
Founded in 1995, the WTO hosts 164 member nations and operates as a platform for the liberalization, negotiation, and settlement of trade agreements and disputes (2). Exclusion has hindered the Iranian economy’s development. Joining the WTO would force other nations and Iran to abide by certain regulations adhering to international rule of law in their trading interactions, allowing for greater economic growth in Iran through the reduction of sanctions, exposure to international investment, and privatization of public enterprises.
WTO members benefit from a variety of factors stemming from a standardized commercial rule of law, as well as lower tariffs, among other advantages. WTO members are also prohibited from placing sanctions on one another, unless a country “considers [it] necessary for the protection of its essential security interests” (3). The lifting of sanctions is especially crucial for Iran, as its economy and people have suffered in recent years from international sanctions in response to its nuclear program and alleged sponsoring of terrorism.
Under WTO rules, all members must approve any organization-wide resolution, including the accession of new members (1). This rule awards to members the right to veto entry requests from non-participating nations. The United States has not been afraid to exercise its veto power, maintaining Iran as the world’s largest economy outside of the WTO (4). For the past twenty years, tension between the U.S. and Iran over issues including the Iranian nuclear programs, relations with close U.S. ally Israel, and human rights abuses, have strengthened American resolve to keep Iran out of the WTO. Sanctions are a powerful tool against Iran; should Iran gain entry to the WTO, its status as a member state would challenge this long-standing tactic to punish its misbehavior with sanctions on the international stage.
From its perspective, Iran is playing its part to align with certain WTO requirements and international expectations. Following its 2010 subsidy reduction, Iran has implemented other economic and tax reforms, including “tariff reductions and changes to its copyright laws” (5). Furthermore, the landmark Joint Comprehensive Plan of Action (JCPOA) arranged mid-last year with the Obama administration and EU promises to curtail Iranian nuclear programs in return for the lifting of certain economic sanctions (6). The nuclear deal arrived after years of disagreement between Iran and the United States and its allies over Iranian nuclear activity, which Tehran claims is primarily driven to fulfill needs for clean energy.
According to Iranian Parliament Speaker Ali Larijani, Iran’s “top priority in economic cooperation with other countries…[is] investment in [its] oil, gas, and petrochemical sectors” (7). Despite its large reserves of oil and gas, the country seeks “$185 billion in investment…in the upstream oil and gas sector, as well as $70 billion in petrochemical and $200 billion in optimizing energy consumer sectors to halve [its] energy intensity, which is two times more than global averages” (7). Energy intensity, which is used to quantify the energy efficiency of a country’s economy, demonstrates the financial cost of turning energy into GDP. The fact that Iran’s is double that of global averages is a testament to its economic isolation as a result of WTO omission, poor management and heavy subsidization of its primarily government-owned energy companies, and a lack of international investment (8). While Iran clearly stands to benefit from WTO accession, the process will be long and difficult.
Nations who wish to be admitted into the World Trade Organization must present a formal application to the Director-General of the WTO. The General Council then creates a working party, whose goal is to “examine the application of the Government [of the applicant country] and to submit to the General Council” its findings, which may include a “draft Protocol of Accession” (9). The applicant nation is then expected to submit a memorandum of its current trade regime, respond to questions regarding the memorandum, successfully negotiate the gaps between its own laws and those of the WTO in the multilateral track, and establish market access commitments on goods and services with specific countries in the bilateral track of negotiation” (10).
Iran first applied for full membership in 1996. Its working party was not established until 2005, and to date, the working party has still not met. Between 1996 and 2005, ambiguity in a WTO consensus rule not only allowed the United States to veto Iranian appointment to the organization, but it also allowed the request to be omitted from the formal agenda of the General Council (9). After a decade-long wait, the Iranian WTO application was formally recognized, and Iran gained observer status in 2005. Predictably, this concession was within the greater context of another attempt to control Iranian nuclear activity, during a time where the E3 of Britain, France, and Germany were in negotiations with Iran (11).
Following the granting of Iran’s observer status in 2005, the newly elected government of Mahmoud Ahmadinejad took four years to submit the Memorandum of Foreign Trade in 2009. Despite the national decision in 1996 that affirmed Iran’s commitment to joining the WTO, Dr. Ahmadinejad’s administration did not view it as a top priority compared to the previous administration (9). In continuation with the accession process, WTO members submitted hundreds of questions to Iran regarding their trading regime.
At this point, the application process has stalled once more. Currently, the working party still needs to nominate a chair to head the accession process for Iran. WTO guidelines assure all member states the right to join any working party of an applicant nation (11). These guidelines once more bring into play the very real possibility of political tensions preventing the election of a working party chair. From 2010 to 2012, the United States imposed sanctions on Iranian access to international financial markets and its oil and gas sector, allegedly as punishment for bank sponsoring of terrorism and renewed nuclear activity (12). It is likely that this perceived hostile activity in the early 2010s slowed the selection process of a working party chair. With the advent of the JCPOA, however, Iran has taken a step in the right direction towards a diplomatic resolution that will allow it access to the WTO.
For the United States to give up its ability to sanction Iran, the Islamic Republic must honor its stated commitment to international security and peace. Last year’s four ballistic missile tests conducted by the Islamic Revolutionary Guards Corps (IRGC) “with slogans calling for the destruction of Israel” did not do much to assure the United States and its allies of this commitment (6). The IRGC is one of many state entities that will stand to lose economic power if Iran joins the World Trade Organization. Currently, it owns one-third of Iran’s annual budget and 51 percent of its telecommunications industry (13). Along with increased interdependence in trading relations with other nations, the influence of WTO legal standards will cause a gradual reduction in the power of state-owned enterprises (SOEs) and the influence of the IRGC, creating an environment that will also force Tehran to honor non-discrimination principles towards foreigners (13).
A long road still lies ahead for Iran. Preceding its accession into the WTO, the country must strike a delicate balance between protecting its domestic industries from international competition and opening its energy sectors to international investment. If Tehran is successful, it will be able to offer its rich oil reserves to fulfill global demands for energy, expand its middle class, and increase regional stability through inter-trade reliance. The United States and its allies would be wise to provide a clearer path to the WTO for Iran. Its complete integration into the global economy through trade will be more effective in aligning its actions with respect for human life and international rule of law than any sanction.
(1) Bizaer, Maysam. "Long Road Ahead for Iran's Bid to Join World Trade Organization." Al-Monitor. N.p., 02 Aug. 2016. Web. 12 Aug. 2016.
(2) "Understanding the WTO: The Organization." World Trade Organization, n.d. Web. 14 Aug. 2016.
(3) Carnegie, Allison. "Here’s What Will Happen If Iran Joins the WTO." Washington Post. The Washington Post, 24 Oct. 2015. Web. 12 Aug. 2016.
(4) Miles, Tom. "Iran, Biggest Economy outside WTO, Says It's Ready to Join."Reuters. Thomson Reuters, 17 Dec. 2015. Web. 12 Aug. 2016.
(5) Consilience: The Journal Of Sustainable Development. Vol. 10, Iss. 1 (2013), Pp. 99 – 110 Effects of a Hypothetical Iranian Accession to the World Trade Organization on Iran’s Flower Industry (n.d.): n. pag. Web. 13 Aug. 2016.
(6) "Iran Asks EU to Pressure U.S. to Get Access to WTO | The Japan Times."Japan Times RSS. N.p., 17 Apr. 2016. Web. 12 Aug. 2016.
(7) Karimov, Fatih. "Iran Attaches Priority on Foreign Investment in Energy Sector."Trend.Az. N.p., 02 Sept. 2015. Web. 12 Aug. 2016.
(8) Moshiri, Saeed. "Energy Price Reform and Energy Efficiency in Iran." International Association for Energy Economics, 2013. Web. 12 Aug. 2016.
(9) Alavi, Jalal. "Accession of Iran to the World Trade Organization: A Legal-Political Overview." Iranian Review of Foreign Affairs 1.3 (2010): 137-59. Web. 12 Aug. 2016.
(10) "Accessions | Iran." World Trade Organization, n.d. Web. 14 Aug. 2016.
(11) Nikou, Semira N. "Iran Gearing Up to Join the WTO–Again." LobeLog. N.p., 22 Dec. 2015. Web. 14 Aug. 2016.
(12) "Fact Sheet: Sanctions Related to Iran." The White House. Office of the Press Secretary, 31 July 2012. Web. 14 Aug. 2016.
(13) Aslan, Reza, and Raj Bhala. "Why WTO Membership for Iran Makes Sense."Foreign Policy. N.p., 23 June 2010. Web. 14 Aug. 2016.
Image: © Paweł Opaska | Dreamstime.com - <a href="https://www.dreamstime.com/editorial-stock-photo-tabriz-street-scene-man-pulling-trolley-boxes-winter-image50637033#res14972580">Tabriz street scene</a>
Stephan Llerena is a member of the second cohort of the World Bachelor in Business, a three-degree undergraduate business program jointly run by the University of Southern California, the Hong Kong University of Science and Technology, and Bocconi University of Milan. His work experience includes interning at a top 5% U.S. criminal law defense firm and with North American diplomats in Hong Kong. He is fascinated by the roles of international trade, law, and relations in maintaining global stability and security.